Financial Markets…Foreign demand for US assets declined for a second consecutive month in March as signs of global economic stability encouraged the “risk on” trade. Net foreign sales of long-term US equities, bonds, and other financial assets totaled $13.5 billion during the month of March, up slightly from a net selling of $13.3 billion in February.

Italian and Spanish government bonds fell on Wednesday as a report showed that the euro-area economy shrank more than expected in the first quarter of 2013. Italy’s 10-year bond yield increased 4 basis points to 4.05%, after sliding to a 7-year low of 3.68% on May 3. The Spanish 10-year yield climbed 5 bps to 4.39%, after touching a 3-year low of 3.94% on May 3.

Indian shares rallied today, with the benchmark Sensex index surging 2.5% to the highest level in more than 2 years, amid speculation of further rate cuts by the central bank following this week’s sound inflation figures. Financial shares led the rally with State Bank of India, the country’s biggest lender, advancing 3.9%, the largest gain since September.

High-income Economies…The Eurozone economy remained in recession for the 6th successive quarter, but output fell at a slower pace in Q1 (by 0.2% q/q sa) compared to Q4 last year (0.6%). The bloc's recession is now longer than the five quarters of contraction that followed the global financial crisis in 2008/2009 and dampens optimism of a quick recovery.

Germany managed to return to growth but only barely, with GDP expanding 0.1% (q/q sa) following a 0.7% contraction in Q4, as strong consumption offset investment declines. France succumbed to recession with GDP falling 0.2% sequentially after a similar contraction in Q4, on weak investment and exports. Elsewhere in the Euro Area, the troubled periphery economies of Spain, Portugal, Italy and Greece remained in recession, but the pace of contraction slowed, particularly in Portugal where output shrank 0.3% (q/q sa) vs a 1.8% contraction in Q4.

US industrial production fell by 0.5% (m/m) after a 0.3% increase in March. The fall, which reflected a broad decline in factory output and weather-related decrease in demand for utilities, pulled IP growth down to 3.6% (3m/3m saar) in April from 4.4% in March. Separately, the US homebuilder confidence index rose from 41 in April to 44 in May on declining housing inventories and low mortgage rates and strengthening local economies that are spurring demand.

Developing Economies…East Asia and the Pacific:Malaysia’s GDP growth slowed sharply to 4.1% (y/y) in Q1 from a 6.5% gain in Q4 last year. The deceleration reflected weak external demand, with exports falling 0.6% (y/y), and slower public consumption.

Sub-Saharan Africa: Retail sales in South Africa increased at a slower pace in March, up by 2.8% (y/y) compared to a 3.9% increase in February. Consumer confidence has slumped in recent months and demand for credit has fallen to the lowest level in about a year as inflation has hovered near the top of the central bank’s 3-6% target range.

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